FILIPINOS should brace for higher fuel and food prices in the coming months as international oil prices already hit a record of $75 per barrel on Wednesday, according to local economists.
Former University of Asia and the Pacific (UA&P) School of Economics Dean Peter Lee U said that while pump prices in the Philippines are not based on Brent Crude—where oil was reported to have already hit $75 per barrel—but on the Mean of Platts Singapore, Brent Crude and MOPS “normally move together.” This leads him to believe that local oil prices may soon follow suit in terms of increasing prices.
“As some countries like the United States are starting to open up again and their economies recover, there will be support for oil prices,” U told the BusinessMirror on Thursday.
Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. told the BusinessMirror that higher fuel would also mean higher food prices. This will also not bode well for economic recovery.
Lanzona said this makes it necessary for the government to ensure that a tight food supply will not worsen the situation. Sufficient food supply will not lead to higher prices and cushion the impact of an increase in pump prices.
He recommended that the government provide supply-side interventions by focusing on agro-based industries that will help keep food supply sufficient. He said government assistance in inputs for industries is also important.
“Given the current mobility restrictions, we can still do so [absorb increase in pump prices]. It depends on how long this will be. Many parts of the world are now recovering. Production of oil may have decreased at the height of the pandemic. It is likely that production of oil may also increase in the coming months,” Lanzona said.
Meanwhile, with reports that Brent crude oil prices have increased to $75 per barrel, UA&P economist Victor A. Abola told the BusinessMirror that inflation may not go below 4 percent in the third quarter.
UnionBank Chief Economist Ruben Carlo O. Asuncion told this newspaper that rising oil prices have been flagged as an upside risk for inflation.
This is expected given the recovery happening in many countries. Asuncion said while it is possible that oil prices may reach $100 per barrel, this will be transitory.
This, Asuncion thinks, will have a negative impact not only on prices but also economic growth. However, he said with the rise in renewable-energy sources and the proliferation of electric vehicles, the demand for oil will be eased.
“As more economic activity happens, we expect more upward pressure on oil prices in the coming months until it reaches some normalization—pre-pandemic level and demand,” Asuncion said.
“Remember that we are coming from a very low base of demand and with the easing of more restrictions, economic activity and demand is sure to rise. This, however, I believe will be transitory in nature,” he added.
Meanwhile, Action for Economic Reforms (AER) Coordinator Filomeno S. Sta. Ana III told this newspaper that a new study published in December 2020 on oil and food prices found no long-term link between fuel and food prices.
With that, Sta. Ana said, the Philippine experience in the pre-pandemic period of rising food prices could be attributed to factors like a rice shortage, and was independent of the increase in global pump prices.
However, the recent spike in oil prices will still see the country being affected. Nonetheless, Sta. Ana said it will not be the primary concern as the country’s challenges in terms of making food affordable are varied.
On Thursday, a Reuters report said oil prices increased for the fifth consecutive day on Wednesday at $75 per barrel. The report attributed the increase to the recovery that is happening in the United States.